Radio Gaining Audience -- but Not Ad Revenue

Medium Holding Its Own Against the IPod, Trying to Embrace New Media

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NEW YORK ( -- Radio has been right behind newspapers as the old-school medium most adversely affected by digital developments. New research, however, shows that radio is actually gaining audience, even in spite of its closest competitor, the iPod.
Zune: Songs on radio are for sale.
Zune: Songs on radio are for sale.

A recent online study from Paragon Research polling more than 400 14- to 24-year-olds about their music-consumption habits found that the youth demo has increased its time spent listening to radio 11% this year, while its time spent listening to iPods has actually decreased 13%. The study coincides with the Radio Advertising Bureau's annual RADAR report, which shows that AM/FM radio listeners increased by 3 million in 2008, bringing the number of weekly radio listeners to 235 million.

Jeff Haley, president-CEO of the RAB, said the Paragon study confirms what the radio industry has heard anecdotally by reflecting the "lack of inertia in the MP3 experience. You don't have the ability to refresh or any kind of automated way to come across great new music. As a result, that isolated programming effect does not allow you the serendipitous experience the way radio does."

But more listeners are not doing much to boost radio's fortunes. Industry revenue has been largely flat to down in the past five years due to the gradual migration of listeners to MP3 players and online radio -- not to mention advertisers' simultaneous migration to other niche media such as cable TV, web portals and, to a smaller extent, satellite radio. Its two core advertisers -- the automotive and retail industries -- are being slammed the hardest by the financial crisis, particularly at the local level, which is where radio makes more than 65% of its total ad revenue. Radio ad revenue was down 6.5% during the first two quarters of 2008, making it the second-most-declined medium next to newspapers, which suffered a 7.4% decrease in ad spending during the same period, according to TNS Media Intelligence's spending report on the first half of 2008. Internet spending was up 8%, a margin notably smaller than the increases it posted in recent years due to the stabilized growth of display advertising.

And it's not as if radio can blame the iPod for the ad declines. Jim Boyle, senior radio analyst for C.L. King & Associates, said although the iPod has had some affect on radio listening, its impact on radio ad revenue has been minimal at best. "It's not as though you have to compete with the iPod to go to the local auto dealer in Ohio for an ad," he said. "Even if they chew into your listenership, the pie is still a much bigger pie. You may only lose a very small percentage of your cost-per-thousand point."

Self-inflicted wounds
And as the industry's highest-ranked executives have readily admitted in recent years, radio hasn't done a good job of embracing new media. As Frank Flores, chairman of the New York Market Radio Association and VP-general manager of the Spanish Broadcasting System, put it, "We've let everybody brand us and put us in different places. The internet branded us as slow and a dinosaur, iPods and streaming just made us seem like your father's brand of communicating, and we've done nothing to dispel that."

That's why its biggest industry initiative to date, dubbed "Buy from FM," is aimed at making FM radio tuners available on every MP3 player and cellphone in the next five years so consumers can identify and buy the songs they hear on the radio directly from their devices. Its first partner in FM song tagging, Microsoft's Zune, just rolled out in 450 stations nationwide, with the RAB and National Association of Broadcasters in "aggressive talks with many carriers to extend the platform," Mr. Haley said.

The RAB has also embarked on a similar partnership with the American Association of Advertising Agencies called the "universal ad ID program," designed to make radio commercials as interactive as the purchase-enabled songs to which they're attached. Mr. Haley said 56 of the top 100 advertisers have adopted the technology thus far, with initial tests expected to roll out in the second half of 2009.

Of course, it's going to take a lot more than Zune's 4% to 5% share of the MP3 market if radio wants to make major inroads in monetizing the music-discovery market, particularly among young influentials. And convincing Washington and the major wireless companies to get onboard "Buy from FM" without Apple's initial support will be tricky at best. "If you don't have the top market-share leader who is dominant in the field, you have your foot in the door, but the door is harder to open," Mr. Boyle said.

Lisa Delio, exec VP-managing director, local broadcast at MPG, said the ad market for reaching young listeners is very finite, so even if overall listening is up, there are only so many ad dollars that can be dedicated to reaching them.
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